US exporting years of wasteful spending. Countries are laughing at the US

Currency markets toss and turn
Currency markets continue to gyrate today, largely on anticipation that the Federal Reserve is poised for a big move to juice the stagnant U.S. economy. The new round of quantitative easing, dubbed QE2 by economists, is expected to be unveiled at the next meeting of the U.S. central bank in November.
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Volatile dollar
Canadian trade, August
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Canadian trade surplus narrows
Montreal, Toronto jobless rates
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Montreal jobless rate dips below Toronto's

While other factors are at play, it is largely a weakening U.S. dollar (USD/JPY-I81.16-0.64-0.78%), which is at 15-year lows against the yen, that is driving other currencies. The Canadian dollar (CAD/USD-I1.00-0.0007-0.07%) climbed past parity with the greenback this morning before pulling back slightly, and Australia's currency is also flirting with parity for the first time in almost three decades.

Also driving currency markets was a surprise move by Singaporeâs central bank to widen the trading band for its currency, allowing it to appreciate more amid concerns over inflation.

There has been much talk lately of a "currency war" as countries seek to hold down the value of their money to remain competitive in export markets. China is under particular pressure to allow the yuan to rise, while Japan has intervened in markets to try to stop the ascent of the yen against the greenback.

The ramifications of a weak U.S. dollar are huge - hence the concern. Scotia Capital economists Derek Holt and Gorica Djeric were particularly harsh in their assement today, raising warnings over the potential fallout:

"[Canadian dollar] strength also proves the point that one needn't have [Bank of Canada] tightening to drive the currency. It's being driven by U.S. efforts to export its years of profligacy to its trading partners and blame everyone else in a process engineered through debasement of the greenback. That is also sparking flows out of the [U.S. dollar] into commodities that in turn reinforce strength in commodity related [foreign exchange] crosses like [the Canadian dollar] ... The U.S. is fooling itself in believing that such efforts may not come back to bite itself via creating instability in foreign markets via feeding abrupt capital flow swings and imbalances ranging from emerging markets through to Canadian housing and household finances."

CMC Markets analyst Michael Hewson noted last week that "there are fears that the U.S. are devaluing the dollar by a form of benign neglect, and as a result putting pressure on emerging market currencies in the process, as investors go looking for yield. This has created tensions and fears of a possible currency war as emerging market economies take steps to stem the appreciation of their currencies."